As a follow-up to my last few posts on this subject I would also like to weigh-in on the post-payout royalties. According to the table of bitumen royalties, at $80 WTI the (post payout) royalty rate is the greater of 30% of net revenue or 4% of gross revenue. According to my calculations at todays $80 WTI, CLL is receiving $63 for dilbit, $50 for bitumen (after deducting cost of diluent and transportation), and netting about $35 (after deducting base royalties and operating costs).

So the post-payout rate is the greater of

A. 4% * $50 = $2 (I am asumming the gross rev is based on the bitumen rev not the dilbit of 63), and

B 30% * ($35+ approx 1.50 base royalty no longer required) = $11.

Obviously $11 is the higher of the A & B.

So pre-payout the per barrel cash flow was $35. Post-payout it will be $35 - 11 for the new royalty + 1.5 for the Base royalty that is no longer required = $25.50 / barrel. So based on todays $80 WTI the post-payout cash flow will decrease by 27% - not the 50% some have suggested. Of course the maximum post-payout royalty rate is 40% (reached when WTI is 120).

As noted in one of my previous posts I don't think the approx $400 MM capital costs will be receovered out of net revenue until 2014 at the earliest (based on $80 WTI) In fact CLL can deduct annual capex on POD 1 (ESPs more wells etc) in this payout calculation which could extend that date well past 2015.

Even after this date other PODS (such as Algar) will be attracting the pre-payout royalty rate of 1% significantly reducing CLL's average royalty rate well into the latter part of this decade.